Lockdowns are locked in quarantine

The Chinese authorities have announced the most significant easing of coronavirus restrictions since the beginning of the pandemic, introduced as part of a “zero tolerance” policy for the virus. The main principle for their introduction will now be the minimization of “high risk” zones, which are subject to the quarantine regime when cases of COVID-19 infection are detected – its “arbitrary” distribution to entire districts and cities will now be considered redundant. The weakening of sanitary measures was preceded by protests against coronavirus restrictions, as well as a decrease in business activity in China, which also affected the country’s foreign trade: China’s exports in November fell by 8.7% yoy, imports – by 10.6%. Experts, however, warn that the recovery of supplies will be hampered by weak global demand and expectations of a slowdown in developed economies.

China’s National Health Commission on Wednesday announced the largest easing of coronavirus restrictions in the country since the start of the pandemic, the changes affect the rules for declaring a quarantine regime and restrictions on freedom of movement, the introduction of lockdowns and testing requirements for COVID-19. The update of the norms implies a significant adjustment of the “zero tolerance” policy for the coronavirus, caused protests in eight major cities, including Shanghai, as well as on university campuses and at the Foxconn factory in Zhengzhou.

The new rules stipulate that “high-risk” areas must be limited to individual buildings or even rooms and floors, as well as households, and cannot be “arbitrarily extended to neighborhoods and cities.” Local authorities must also lift quarantine if no new cases are reported within five days.

Moreover, those with a mild form of coronavirus infection will be able to be treated and quarantined at home, they will not need to be in special quarantine centers.

The Chinese department has proposed renaming COVID-19 itself – from a disease associated with pneumonia to an infectious virus (we are talking about the name in Chinese). Testing requirements will remain, but the frequency and coverage of tests will be reduced (in particular, movement within the country will be easier), and you will not need to present a green code on your phone to access public places, except for nursing homes, medical institutions, kindergartens and schools.

It should be noted that in November, the Chinese authorities already tried to ease covid restrictions (previously, the lockdown could affect the entire city for several weeks if only a few cases of infection were detected), but resumed their use in large cities in response to the increased number of cases. This wave of restrictions affected business activity (the official PMI in November fell from 49.2 points in October to 48 points, a value below 50 points indicates a reduction in activity) and the country’s foreign trade. USD-denominated annualized exports fell 8.7%, the most pronounced decline since May 2020 (also below the consensus of 3.9%). Imports fell by 10.6% – this is also the strongest decline in the import of goods since mid-2020, the fall is associated both with a decrease in demand for components and raw materials for export, and with a weakening of domestic demand, back in October, the decline in trade was less pronounced – exports decreased by 0.3%, imports – by 0.7%.

AT Capital Economics calculated that China’s exports also fell significantly mom and seasonally adjusted by 6.8%, but they believe that such dynamics are primarily due to weakening external demand, and not to problems in supply chains.

Exports fell across the board, including shipments to the United States, while imports also fell in microcircuits – according to the center, this indicates a drop in demand for Chinese exports of microelectronics. Experts attribute the increase in China’s imports of crude oil to its increase in quotas for the export of petroleum products. As a result, the country’s trade surplus also decreased – in November it amounted to $70 billion against $85 billion in October. At the same time, since the beginning of the year, China’s accumulated foreign trade surplus has reached $802 billion, an increase of 39% compared to January-November last year, against this background, the contrast with the current dynamics is especially noticeable.

Despite the economic losses, the complete abolition of covid restrictions will drag on for a long time, Capital Economics expects. The process will contain the low level of vaccination among the elderly cohorts of the population, as well as the need to reduce the pressure on the healthcare system in cases of “secondary” growth in the number of cases due to the easing of the quarantine regime. Foreign trade is expected to be affected in two ways. Imports may grow due to a partial recovery in consumer demand, while exports will depend primarily on the global environment – with weak demand amid slowing growth in other countries, the dynamics of supplies abroad may remain negative in subsequent quarters, the center believes.

Tatyana Edovina